5 Reasons Work in Progress (WIP) Improves Cashflow and Profit

Introduction - Work in Progress (WIP) Improves Cashflow

If you run a construction or engineering business, you’ve probably said something like:

• “We’re busy and the jobs are going well… so why is cash tight?”

• “We made profit last month… but the bank balance didn’t move.”

• “We’ve invoiced loads… yet we’re still being squeezed by suppliers.”

Most of the time, the missing link is Work in Progress (WIP).

WIP is not “an accountant’s adjustment”. It’s a simple idea:

If you don’t track WIP properly, you end up with profits that aren’t real, forecasts that are guesswork, and cashflow that lurches from good months to panic months.

This matters even more for SMEs and fast-growing firms. Bigger companies can absorb mistakes. A £500k–£5m contractor often can’t. One misreported month can lead to:

• underpricing the next jobs,

• hiring too early,

• or running out of working capital when VAT/PAYE/CIS hit.

For related reading from JFA’s Daily Blog, these are useful:

• WIP and department KPIs: https://www.jonesfa.co.uk/post/kpis-for-refurbishment-installation Jonesfa

• Working capital control: https://www.jonesfa.co.uk/post/working-capital Jonesfa

• Forecasting without guessing: https://www.jonesfa.co.uk/post/forecast-revenue-profit-cash Jonesfa

  
  

What “Good WIP” Looks Like

A good WIP process answers five questions on every live job:

1. How much work is genuinely complete?

2. How much have we invoiced for it?

3. How much have we spent so far?

4. How much will it cost to finish (cost to complete)?

5. What profit (or loss) will be left at completion?

That’s it. No jargon needed.

1) WIP Stops “Paper Profit” and Shows Real Profit

The profit problem WIP fixes

Without WIP, your monthly profit can look great simply because:

• costs are delayed (supplier invoices not in yet),

• labour is booked late,

• or project progress isn’t matched to revenue.

That creates paper profit, profit that looks good on a report but won’t ever land as cash.

The impact on profits

Accurate WIP:

• matches costs to the period where the work happened,

• highlights margin drift early,

• stops one job masking another.

Real example (simple numbers): You’ve spent £80k on a job and believe it’s 50% complete. The contract value is £200k.That means you’ve “earned” about £100k of revenue so far.If you’ve only invoiced £60k, the WIP report shows £40k unbilled, and makes it obvious that profit is building but cash hasn’t caught up yet.

Common mistake / myth:“WIP just makes the accounts look nicer.”No, WIP makes the accounts honest.

2) WIP Improves Invoicing and Sales (Because It Forces a Rhythm)

The invoicing problem WIP fixes

Many contractors invoice when:

• someone “has time”,

• a PM remembers,

• or a customer asks.

That’s not a system. That’s hope.

The impact on invoicing / sales

Tracking WIP properly forces you into a consistent commercial rhythm:

• valuations/applications go out on time,

• variations are raised earlier,

• invoice milestones become non-negotiable,

• sales teams stop selling work you can’t deliver profitably.

You’ll also spot underbilling early (work done but not billed). Underbilling is one of the biggest silent killers of cash in construction.

Helpful free tools JFA provides:

• Job / Project Profitability Tracker (to tie cost + progress together): https://www.jonesfa.co.uk/resources Jonesfa

• Absorption Costing Calculator (to ensure your rates cover overheads): https://www.jonesfa.co.uk/resources Jonesfa

3) WIP Makes Cashflow Predictable (Not a Surprise)

The cashflow problem WIP fixes

Cashflow issues usually aren’t because work isn’t profitable. They’re because of timing:

• stage payments arrive later than expected,

• costs hit earlier than expected,

• applications don’t go out,

• retentions sit unpaid.

The impact on cashflow

A clean WIP report tells you:

• what’s unbilled (cash you haven’t asked for),

• what’s overbilled (cash you’ve pulled forward, but still owe in delivery),

• what cash pressure is coming from cost-to-complete.

Then you can forecast properly instead of guessing.

If you want a strong foundation, pair WIP with:

• 13-Week Cashflow Forecast Template: https://www.jonesfa.co.uk/resources Jonesfa

• Management Accounts Review Checklist (so directors know what to look for): https://www.jonesfa.co.uk/resourcesJonesfa

4) WIP Strengthens Debtors (Because It Prevents Disputes and Delays)

The debtor problem WIP fixes

Debtors don’t become a problem when the invoice is 60 days overdue.They become a problem before the invoice is even raised.

If applications and invoices don’t match job progress (or documentation is weak), customers delay approvals, query valuations, and payment slows.

The impact on debtors

WIP discipline improves debtor quality because:

• applications are supported by progress evidence,

• variations are documented earlier,

• invoices align with what the client expects to certify.

Then credit control becomes easier and faster.

5) WIP Protects Creditors and Supplier Relationships

The supplier problem WIP fixes

Suppliers squeeze you when they don’t trust you.And they stop trusting you when:

• you pay late without warning,

• you can’t explain when cash is coming in,

• or you’re constantly reacting.

The impact on creditors

WIP improves supplier management because it helps you plan:

• when cash will land from applications,

• what costs must be paid next,

• which projects are cash-positive or cash-negative this month.

That allows you to:

• schedule supplier payments intelligently,

• negotiate better terms,

• avoid panic decisions (like paying proformas last-minute).

This links directly to working capital control: https://www.jonesfa.co.uk/post/working-capital Jonesfa

Practical Steps: How to Improve WIP in the Next 30 Days

1. Pick your method (percentage complete, milestones, cost-to-complete) and standardise it.

2. Make PM sign-off mandatory for % complete and cost-to-complete (no sign-off, no board pack).

3. Split your jobs into meaningful phases (labour, materials, subcontract, plant) so variance is visible.

4. Run a monthly WIP meeting before accounts close (so finance isn’t guessing progress).

5. Tie WIP to cashflow using the 13-week template so you can see pressure points early. Jonesfa

Key Takeaways

• WIP stops “paper profit” and shows real profitability job-by-job.

• WIP improves invoicing discipline, which speeds up cash collection.

• WIP makes cashflow forecasting reliable instead of reactive.

• WIP reduces disputes, strengthens debtors, and protects supplier relationships.

If you want to scale a construction or engineering business without constant cash surprises, WIP is not optional, it’s the control panel.

If you’d like JFA to help you build a WIP process that your whole team can follow (not just your accountant), start with the free tools here: https://www.jonesfa.co.uk/resources. Jonesfa

Wrapping up today's insights, tomorrow we simplify another accounting challenge.